The Commission contracted for an independent, outside study of the carve-out
programs in California.

Description

This independent study involved several concurrent efforts. Each of these efforts was meant to inform carve-out participants and other interested parties about the advantages and problems associated with these experiments in alternative dispute resolution and efforts to speed benefit delivery to workers. Much of the early research on carve-outs suggested that these alternatives saved employers substantially on workers’ compensation costs while reducing the level of litigation. However, there was considerable concern within the community over the protection of workers’ rights and benefits.

Administrative Survey of Carve-outs

All carve-out agreements were reviewed and the principal administrator for
each program was interviewed concerning a number of important issues including
length of medical control, construction of medical provider lists, restrictions
on medical-legal evaluator lists, alternate dispute resolution processes, access
of workers to legal representation, participation rates among eligible employers,
costs of administration, and level of litigation.

Case Studies

Drawing on the information from the Administrative Survey, two case studies
were conducted. The two carve-outs were selected based on two separate models
of employer/union negotiation. One study was selected as a large project wrap-up
arrangement where a single owner negotiated an agreement with all trades involved
in the project. The other study examines the experience of an agreement between
an association of many employers and a number of union locals representing only
a single trade. Each of these carve-outs was the subject of extensive interviews
of many participants including employers, union leaders, workers, ombudspersons,
mediators, arbitrators, medical providers, claims administrators, insurers,
safety personnel and negotiators for both sides.

Analysis of Alternate Dispute Resolution/Survey of Ombudspersons

An analysis of the structure and functioning of the ADR process was conducted
for all operating carve-outs. This involved analysis of documents and agreements,
site visits, numerous interviews with participants, and a telephone and written
survey of all current ombudspersons. These analyses focus on the way in which
the ADR structures and implementation may affect the independence of the ombudspersons,
the fairness of the process, and the protection of the rights of workers and
employers.

Quantitative Methodology

Carve-outs are a new innovation and data is limited. This part of the project focused on the development of a methodology to reliably evaluate the impact of carve-outs on the costs to employers, litigation rates, and impact on worker benefits. The objective was to develop reliable methods that can be implemented with currently collected data, reproducible in other jurisdictions, and straightforward to apply and interpret. This methodology was then used to analyze data on the NECA/IBEW carve-out, the largest carve-out operating anywhere in the country.

Findings

The study determined that while early data reported by DWC suggested that carve-outs
resulted in substantial savings on both medical and indemnity costs, precipitous
drops in litigation, and possible marked improvements in safety, these conclusions
were drawn from limited data. As a result, that data may also have been misinterpreted.

Litigation rates on further evaluation appear similar between both systems,
at least at this early stage. The number of claims resulting in some form of
dispute resolution, a mediation or arbitration under a carve-out or a mandatory
settlement conference or hearing in the statutory system were similar. However,
the portion of seriously injured workers in carve-outs represented by attorneys
was only half that of the statutory system.

Early data from the quantitative evaluation, currently in process, indicates
that both medical and indemnity costs have declined for carve-out employers,
but this decline mirrors a similar decline for noncarve-out employers, reflecting
a general improvement in the California workers compensation environment
since the early 1990s.

Part of the reason that the carve-outs may have produced less dramatic savings
than earlier predicted may be because the ADR processes and medical and medical-legal
provisions are still evolving towards a best practice. With improvements in
implementation, it is anticipated increased savings will occur. The report to
the Commission made a number of recommendations on how carve-outs could develop
structures that could improve protections for workers while increasing opportunities
for employers to achieve additional cost savings.